Becoming self-employed: the 5 most commonly asked questions

Becoming self-employed: the 5 most commonly asked questions

Self-employment: it’s a scary business, isn’t it? Ask anyone who has taken the leap themselves, and they’ll tell you: the ‘should I, shouldn’t I?’ stage comes with long, sleepless nights, and – in some cases – a washing-machine’s-worth of soiled underpants.

Unfortunately, this article isn’t about to offer up a magical remedy – we’re a website, not a psychiatric practise, so you’ll have to look elsewhere for any deep-seated anxiety cures. But we’re good at listening, and we’ve heard a lot of the questions that people starting out in business have, whether they’re launching a new startup or turning self-employed for the first time.

So here are some of the five most commonly asked questions we hear at My Accountant Friend. If you’re going it alone yourself, and you have any other questions you want to ask, feel free to put them in the comment box below and we’ll get you some answers as soon as we can.

1. What are the main benefits of forming a ltd company over being a sole trader?

This is a time-honoured classic, and unfortunately one of those questions with no short answer. But let’s see what we can do…

Forming a limited company is mainly about what we like to call ‘tax efficiency’. No, don’t fall asleep just yet – tax efficiency comes with pleasing advantages! You can claim back a wider range of expenses, including accountancy fees, equipment and software costs, you can access a VAT scheme known as the flat rate scheme, which allows you keep some of the VAT you receive, and you have complete control over your financial affairs.

And it’s really not as difficult as you might think. The common misconception is that forming your own ltd company takes a lot of extra work, but a lot of it is about finding a decent accountant who is willing to advise and make suggestions whenever you need them, and who can do a lot of the paperwork for you so that you can get on with having a life, and other desirable things!

2. Do I need an office, or should I just work from home?

Let’s not pretend here – a huge part of the attraction of being a contractor or freelancer is the opportunity to work from the sofa. Whether that’s the right or wrong thing to be doing depends as much on your type of business as your own sense of self-discipline, but if you can’t make up your mind, the good news is that there are plenty of interim options.

It’s always worth looking around to see if there are any incubators or hot-desking spaces in your area. A lot of people we talk to work in London, where you can share places like Bathtub2Boardroom (a grand old building behind Bank Station that focuses on startups) or sign up for a spot of desk-camping (offices renting out spare desks, or sometimes even offering them in exchange for a bit of your time and know-how). For a lot of self-employed contractors, these places not only offer a space to work and bounce ideas around, but also a place to network. Who knows? The person desk-camping next to you may offer you your next big contract.

3. Do I need a business plan?

We hate to break it to you, but if you don’t have one already, it’s unlikely you’ll strike lucky when you go looking for funding. Even if you aren’t looking for investment, it’s still a pretty good idea to get a business plan together. For a start, it’ll keep you on the straight and narrow, reminding you of your own original intentions when things get so hectic that you feel you’ve lost your head.

If your plan is simply to float from contract to contract, sitting down and planning that out – what to do when the chips are low, how you plan to source those contracts – can help you to stay focused and get some sense of what you’re taking on.

Not sure where to get started? There are plenty of free resources online, many on the Gov.UK website, where business plan templates and guides seem to be what they spend a lot of their time creating. 

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4. How do I pay myself?

That’s the killer question! And, as you might expect, there’s a long and a short answer.

The short answer is to get in touch with an accountant that understands your business, what your personal requirements are, and can help you to work out the best self-payment method. It’s one of the things we do a lot of here at My Accountant Friend, working it all as you head off into the great wide world with our receipts and expenses app, your dashboard logins, and a head full of ideas. 

The long answer, once you’ve formed your ltd company, involves understanding two methods and choosing which is right for you. There’s ‘Employer and Employee’, which involves deducting income tax, Class 1 (Employer’s Contributions), and Class 4 National Insurance contributions from your salary, and forwarding them to HMRC monthly (or possibly quarterly if the amounts are low enough).

And then there’s what we like to call Contractor Tax and the Take-Home Balancing Act: Salary v. Dividends – which sounds an Edward Norton movie, but isn’t. This involves paying yourself using a mixture of salary and dividends (dividends do not qualify for National Insurance).  Exactly where you place the split between these two types of income must be carefully calculated to ensure that you get the best return, and – guess what? – an accountant is usually best-placed to help you make that decision.

5. How do I deal with HMRC?

In recent years, the British taxman has become surprisingly web-literate, and the info services he runs on his website is nothing if not comprehensive. Perhaps too comprehensive for some people’s liking. At the time of writing, their self-employment page runs to over 40 chapters, which is wonderful if you feel confident that you can do this alone, but quite daunting if tax and accountancy scares the bejeezus out of you.

The truth is that an up-to-speed accountant will know all of this stuff without having to look, and a really good one will be able to render this impenetrable world of rules, maths and accountancy-speak as understandable as you need it to be. At My Accountant Friend, we make that a big part of our mission.

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As an on-demand accountancy service, My Accountant Friend gives you the tools to be as involved as you want to be. If you want to check into your accounts every five minutes, then you can use our dashboard and app to do that. If you’d prefer to keep as far away as possible, then you can do that, too.

Just get in touch when you need us. There are no ticketing systems, so you get the same helpful voice on the other end of the line (or there in person, if you prefer) whenever you need them, so you don’t have to waste time explaining your situation to someone new on every phone call. We do hassle-free accountancy, ready when you are.

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